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UBS: $100 Oil-Price Spike Would Trigger Recession

UBS: $100 Oil-Price Spike Would Trigger Recession
(Paul Fleet/Dreamstime)

By    |   Wednesday, 23 May 2018 01:33 PM

Swiss investment bank UBS reportedly warns there could be an oil price spike to $100 that triggers a U.S. recession.

Oil prices have risen above a "sweet spot" between $50 and $70 a barrel that encourages global growth, CNBC.com cited UBS as saying.

"However, now that we are getting closer to $100/bbl the net impact of higher oil prices is again becoming a net negative," UBS economists said in a research note. "The global sweet spot — where oil prices may have positively contributed to global growth — seems to be somewhere between $50/bbl and $70/bbl," CNBC cited UBS sa saying.

"We should take seriously the possibility of an oil price spike ... not least because oil spikes preceded 5 of the last 6 recessions (in the US)," UBS said.

UBS said prices could keep rallying for several reasons, putting the U.S. economy at risk of entering a recession.

Meanwhile, oil benchmarks fell on Wednesday after an unexpected build in U.S. crude and gasoline inventories despite strong demand, and as traders weighed the possibility of an increase in OPEC crude output to cover any shortfalls in supply from Iran and Venezuela.

U.S. crude inventories rose 5.8 million barrels last week, while gasoline stocks increased by 1.9 million barrels, the Energy Information Administration said. 

Both builds were unexpected, as a Reuters poll called for a drawdown in both figures as summer demand starts to heat up. Overall demand for refined products in the United States has kept refining activity buoyant, helping drain crude inventories in the world’s largest consuming nation.

“A 5.8 million-barrel build is kind of like a slap in the face, where it’s like, ‘Where did this oil come from?’ And as you look through the numbers, it doesn’t make a lot of sense,” said Phil Flynn, analyst at Price Futures Group in Chicago. “It is definitely a shock to the system.”

The increase in U.S. inventories came from a combination of reduced exports and rising imports; the latter is somewhat surprising, Flynn said, because Brent crude is currently trading at a $7 premium to U.S. crude, making exports more advantageous right now.

Brent crude futures were trading $1.08, or 1.4 percent, lower at $78.45 a barrel as of 10:54 a.m. EDT, while U.S. crude lost 85 cents to $71.35 a barrel.

Oil prices have gained nearly 20 percent this year, with Brent briefly rising above $80, driven primarily by coordinated supply cuts by the Organization of the Petroleum Exporting Countries and partners including Russia.

(Newsmax wire services contributed to this report).

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Swiss investment bank UBS reportedly warns there could be an oil price spike to $100 that triggers a U.S. recession.
ubs, oil, price, recession, crude
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2018-33-23
Wednesday, 23 May 2018 01:33 PM
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